Pep Boys Said to Explore Sale of Auto-Parts Retailer Using Bank of America

Pep Boys - Manny, Moe & Jack, the
Philadelphia-based auto-parts retailer, is considering a sale of
the company and working with Bank of America Corp. to explore
strategic options, said two people with knowledge of the matter.
The shares rose the most in 21 months.

Pep Boys isn’t likely to run a formal sales process, and is
trying to drum up interest among a handful of private-equity
firms such as Leonard Green & Partners LP, Bain Capital LLC and
TPG Capital, said one of the people, who declined to be
identified because the process is private. Pep Boys tried
unsuccessfully to sell itself in the past, the people said.

The company has renewed efforts to find a buyer as its
earnings improve and private-equity firms seek takeover targets
in retail, the people said. Founded 90 years ago, Pep Boys has
more than 600 stores across the U.S. offering service and parts.
It earned $23 million in the year ended Jan. 30 after four
straight years of losses. In December, Pep Boys said profit for
the first nine months of the year climbed 36 percent, bolstered
by new tire centers and increasing customer traffic.

“This is an operational improvement story with an
underlying strong macro environment,” said Bret Jordan, an
analyst at Avondale Partners LLC in Nashville. People are
holding on to old cars longer and driving more, so there’s
increased demand for repairs, he said in a telephone interview.

Pep Boys doesn’t comment on “unusual market activity,” it
said today in a statement. Charlotte, North Carolina-based Bank
of America didn’t return a call seeking comment.

Pep Boys Performance

Pep Boys rose $1.83, or 15 percent, to $14.15 at 4:06 p.m.
in New York Stock Exchange composite trading, giving the company
a market value of about $743 million. The increase was the
biggest since April 8, 2009.

Five years ago, the auto-parts retailer hired Goldman Sachs
Group Inc. to weigh options after investor Barington Capital
Group LP lobbied for a change in leadership. Pep Boys is now run
by Chief Executive Officer Mike Odell, who joined the company as
operations chief in September 2007. New York-based Barington
owned 4.7 percent of Pep Boys’ shares outstanding as of June 29,
according to data compiled by Bloomberg.

In the past five years through 2010, there have been almost
30 transactions for auto-parts retailers in North America,
according to data compiled by Bloomberg. The largest, O’Reilly
Automotive Inc.’s takeover of CSK Auto Corp. in 2008, valued CSK
at about 10 times earnings before interest, taxes, depreciation
and amortization. The median for similar industry deals
worldwide over the past decade is 6.9 times ebitda.